Legal Matrix for Regulating Online Rummy in India

Introduction

In India, smartphone usage and internet penetration have increased dramatically over the previous decade. This resulted in the widespread acceptance of online gaming as a result of the pervasiveness of mobile devices and the internet. Because the online gaming industry is still mostly unregulated, there has been a growth of both chance and skill-based games. More crucially, the popularity of real money gaming has skyrocketed. COVID-19’s isolation has led to a huge increase in the number of casual internet gamers in India.

Gambling is placing a wager on the outcome of an event or game with an unknown outcome. People who gamble put a certain amount of money on the line in order to win more. Thus, we can say that gambling is an activity that is dependent on the luck and outlet of an individual who placed a bet on an event; whereas betting is a type of gambling that is defined as an organised commercial activity between two parties in which one party predicts the outcome of the event and places the bet, and the other party who loses the bet agrees to pay the player the money.

During the pandemic, the gaming industry exploded, and India lacks a comprehensive legal framework to support it. Regulation has been far outpaced by technology. India’s gaming regulations are out of date, and as a result, their application to online structures is complicated. The conflict between the centre and the States, as well as the differing perspectives of various Indian courts, makes it difficult for businesses to understand what activities are authorised in the sector.

In Financial Year 2020, the market value of India’s gaming business was estimated to be approximately INR 90 billion. By 2022, it is expected that this figure would have risen to approximately INR 143 billion. The sector has been rapidly growing in the country, with analysts predicting that over 40,000 new employment possibilities would be available by 2021. In India, online gaming will reach 500 million players by 2025.

In this article, we are going to discuss the legal conundrums in which these online cards game have been caught and how some State Governments are bringing amendments into their respective Gaming Act to put a ban on these games. Further, in this paper, we are going to discuss how various High Courts in India have upheld the validity of these amendments by creating a distinction between “game of skill versus game of chance”.

Legality of online rummy in India

Under the Constitution, betting and gambling are considered State subjects, and each State has the sole legislative authority to adopt laws governing betting and gaming within its borders. Certain Indian States have passed their own legislation to govern betting and gaming inside their borders (“State enactments”), while others have accepted the Public Gambling Act, 1867¹ (PGA). The PGA and most State enactments (collectively, “gaming enactments”) were created before the advent of virtual/online gambling, and hence largely ban gambling operations that take place within physical premises, described as a “common gaming house”.

Section 12² of the Public Gaming Act carves out an exception for those games where an element of skill predominates the element of chance. To put it another way, skill games are excluded from the Public Gambling Act in India. The Indian courts have used the so-called “dominant factor test” to determine if a game is a game of skill or a game of chance. A game of “mere skill,” according to this criterion, is one in which the element of skill is the most important component in selecting the game’s winner.

The jurisprudence behind the gaming and betting laws has been evolved through various judicial pronouncements. The Supreme Court in R.M.D. Chamarbaugwalla v. Union of India³ has construed the words “mere skills” to include games that are based on a preponderance of skill and laid down that competition where a substantial degree of skill is involved will not come into the category of “gambling” even if an element of chance is present in it. The Supreme Court observed that whether a game is of chance or skill has to be decided from a case-to-case basis. Following the rationale of Chamarbaugwalla⁴ case, the Supreme Court in State of A.P. v. K. Satyanarayana⁵ held that game of rummy is not entirely based on the game of chance, it involves a substantial degree of skill. The Supreme Court based its conclusion on the fact that the game of rummy involves memorising the fall of cards and the building up of rummy requires considerable skill in holding and discarding cards.

Some States are trying to regulate online gaming by bringing an amendment to their respective State Gaming Act. For instance, Section 14 of the Kerela Gaming Act, 1960 provides that provision of the Act will not be applicable to any game where skill is involved. Section 14-A, which was added at later date, states that the Government may exempt any game from the Act by notifying the public in the Gazette if it is satisfied that the element of skill outweighs the element of chance in the game. Accordingly, the Kerala Government issued a notification exempting “rummy” from the Act on the term that no side betting shall be allowed under Section 14-A. However, in February 2021, the State of Kerala issued a new notification, modifying the previous one by adding the phrases “except online rummy when played for stakes”.⁶ The argument from the State was that gambling and betting come under Entry 34 in List II and the State has the power to legislate on the subject-matter. The Government argued that online rummy is not primarily a skill-based game and there was an element of cheating involved and that even the card deal was manipulated. The State argued that because the judgment in K. Satyanarayana⁷ case was handed down before Section 14-A was enacted, it was impracticable to apply it to all the decisions because it did not examine the case where the enactment contained Section 14-A.

Similarly, the Government of Tamil Nadu comes up with Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 which has amended the Tamil Nadu Gaming Act, 1930⁸. The Amendment Act prohibited all forms of games being conducted in cyberspace, irrespective of the game involved being a game of mere skill if such game is played for a wager, bet, money, or other stakes. In the 1930 Act, Section 11 provided that games of “mere skills” will be exempted from the application of the 1930 Act thereby games that involve “mere skill” were not considered as an offence however the amended Section 11 under the 2021 Amendment Act, it provides that the games of mere skill will be considered as an offence if such games are played for a wager, bet, money or other stakes.

Some of the other important features of the Amendment Act are that the definition of the word “game” has been expanded, Section 3-A has been introducing in the Act to prohibit wagering or betting in cyberspace. The State’s argument was that because the legislature, as the rightful representative of the people in the State, considers betting in cyberspace to be pernicious, and because the State has exclusive authority under the Constitution to legislate in the field of betting, the amending statute meets the standards because the legislation’s goal is to stop gambling and ensure that citizens are protected. The State also argues that activities being of gambling nature cannot be regarded as trade or commerce and no one can claim any right in respect of such activities under Article 19(1)(g)⁹ of the Constitution¹⁰ and all online games are invariably open to manipulation. Therefore, no distinction needs to be made in such regard between games of chance and games of skill.

What is the issue all about

It is an undisputed fact that the whole area of online rummy’s business is regulated in a grey area. There is no definite law in place regarding its legality regulations or its taxes. With its meteoric ascent, there has been a surge in interest in the legality of the game of online rummy, specifically whether they will come under betting/gambling or fall under the legally permissible category of “game of skill”. The legal concern with online rummy arises from the fact that, in most cases, these games include real money transactions and are frequently compared to betting and gambling.

The argument of the Tamil Nadu Government in Junglee Games India (P) Ltd. v. State of T.N.¹¹ was also based on the same line of reasoning. The Tamil Nadu Government was of the view that the policy decision to bring the amendment in the 1930 Act is to prevent the addictive tendency which is resulting in multiple instances of suicide and financial losses. The State argues that the target audience for these games is the young and uneducated since the games provide “simple incentives in the form of real cash as prizes.¹² However, the Court observed that when legislation is challenged based on overbearing paternalism, a cost-benefit analysis must be conducted to see if the benefit in the form of public good surpasses the cost of the person being robbed of his freedom of choice. The Court also observed that paternalistic legislation might be used to control activities when it is thought necessary or if the undesirable effects of overindulgence in certain activities are sought to be eradicated. The Court further observed that the stronger the moral foundation for controlling an activity, the greater the degree of authoritarianism exercised by the Government in stopping persons from exercising their freedom of choice, under the garb of protecting such persons from such activity. So, to counter the State argument the Court noted that, in the absence of any scientific or empirical evidence to support the proposed action, the amending Act may be seen as adopted out of a feeling of morality rather than a genuine attempt to reduce the (perceived) impact of such games.

It is worth noting that the Law Commission of India, in its 276th Report¹³ on the legalisation of gambling and sports betting in India, suggested that skill-based games may be exempted from the definition of gambling, without identifying which activities would qualify as “games of skill”.

Given the preceding Supreme Court rulings, it is clear that the legality of online fantasy sports is contingent on whether they are considered a “game of skill” or a “game of chance.” Several prestigious academic institutions, like the Indian Institute of Management (IIM-B), have performed empirical research to prove that fantasy sports are skill-based activities. In a study conducted by researchers from MIT and Columbia University, it was found that participants involved in fantasy sports (Cricket and Basketball) demonstrate a higher degree of skill than that of mutual fund managers managing stock portfolios.¹⁴

Game of skill versus game of chance

First and foremost, a thing which should be kept in mind while deciding the legal matrix of the game of online rummy in India is to understand the distinction between a “game of skill” and a “game of chance”, as these distinctions have a significant impact on the status of online rummy in India. In order to win in a game of skill, a player must devote time to learning, practicing, and mastering their talent. In such games, one’s ability to win is determined by how well one understands the rules and common practices, as well as how efficiently one plays. The player can become an expert and assure success over time. Physical real-world sports are largely skill-based rather than chance-based activities whereas, in a game of chance, chance takes precedence over ability, and the outcome of the game is heavily influenced by luck or chance. There is no way to anticipate who will win because the decisive variables are coincidental. However, in the real world, the boundary between ability and chance is blurred, and most games include both. Most card games, for example, are games of chance with a possibility of winning based on a player’s ability.

The Indian courts have adopted a simple method to understand the distinction between the two: a game of skill may be learned through time, but a game of chance cannot because it is dependent on the occurrence or non-occurrence of a certain event. Games of skill are permitted in most parts of the country, but games of chance are strictly forbidden and considered immoral and criminal. The age-old Public Gambling Statute of 1867, for example, is the only primary Act in India that criminalises most aspects of gambling (game of chance). While the Act restricts gambling in the country, it also specifically permits games of “mere skill” to fall under its scope. The Supreme Court, in State of Bombay v. R.M.D. Chamarbaugwala¹⁵ construed the phrase “mere skill” to encompass games that are predominately skill-based, despite modest components of chance.¹⁶ What constitutes a “game of skill” was first decided in State of A.P. v. K. Satyanarayana¹⁷ wherein a game of “rummy” was determined to be a game of skill, involving memorisation and judgment abilities. the court said that “it is principally and preponderantly a game of skill” — and so could not be criminalised under the Public Gambling Act.¹⁸ The issue was raised again in K.R. Lakshmanan v. State of T.N.¹⁹ when horse racing was ruled to be primarily a skill game. In this instance, the court employed the “preponderant factor test” or “dominant factor test” to determine whether the game is a “game of chance” or a “game of skill”. This test identifies and recognises that most games involve both chance and skill, but the dominance of one component over the other is to be considered as the decisive factor in determining whether it fits under the category of skill or chance in this test.²⁰

Offline versus online game

Many State Governments are bringing an amendment to their respective Public Gaming Act in order to ban online fantasy sports in India. Recently the Karnataka Government has passed the Karnataka Police (Amendment) Bill, 2021 in order to ban online gaming of all forms except lottery and horse race. Karnataka has joined the ranks of Tamil Nadu, Andhra Pradesh, and Kerala in attempting to limit online gaming through law. The Karnataka Government’s law too, wants to prohibit any sorts of online games that include profit, betting, wagering, or cash exchange in any way. One thing which is common in all State Government Amendment Bills is that they are creating a distinction between the online games and the games played in enclosed spaces.

For example, the Kerela Amendment Act tried to put a blanket ban on the game of online rummy when played for stake. Section 14-A of the Amendment Act lists out some exceptions where certain games will be excluded from the ambit of the Act as they involve an element of skill in it and the game of rummy is one of such exemptions in it. Gameskraft (petitioner) sought to challenge the Amendment Act before the Kerela High Court on the ground that the Amendment Act was introduced to put a ban on side batting, it does not distinguish between the game played for stake or without a stake. One of the arguments put forth by these companies in the case is rummy played with stakes would be valid going by the contents of the notification but “online rummy” which is in no way different from the game rummy when played for stakes, would come within the purview of the Gaming Act as per the notification is irrational and arbitrary. Agreeing with the argument put forth by the petitioners in the present case, the Kerala High Court going by the decision laid down in R.M.D. Chamarbaugwalla²¹ case held that the games which involve a “substantial degree of skill” will come out of the purview of the Act. The Court while declaring the Amendment Act unconstitutional held that “online rummy” is in no way different from playing the game of “rummy” in clubs or enclosed spaces. The Court while going with the decision laid down in K. Satyanarayana²² and K.R. Lakshmanan²³ held that game of rummy involves a substantial degree of skill, and “online rummy” also involves a substantial degree of skill, and it is no way different than a game of rummy played in enclosed spaces.

The test to be determined in deciding whether the game should come within the ambit of betting or wagering depends on, whether the game involves a substantial “degree of skill” or it involves “game of chance”. If the online game involves a substantial degree of skill then no prohibition should be imposed on such game as stated in the decision of the Kerala High Court and Madras High Court.

Conclusion

Skill-based gaming cannot be compared with gambling, and it differs from the game of chance as also clearly differentiated under the Indian regulatory framework held by the courts. The Courts have also observed that there is no such distinction between a game played virtually and a game played in enclosed spaces what matters is the game should involve a substantial degree of skill rather than a chance. Moreover, the Indian courts have time and again have struck down the amendments to laws that put a blanket ban on games that involve a substantial degree of skill.

Instead of such sweeping prohibitions, State Governments should implement exclusive laws to control online games, since these prohibitions would only encourage illicit gaming throughout the country. Regulation of the online gaming industry will certainly help in removing uncertainties that have arisen due to separate State laws on gaming. Putting a blanket ban on online gaming industries will result in a loss of revenue for the country. This sector has seen tremendous growth, with analysts predicting that over 40,000 new employment possibilities would be available by 2021. Thus, putting a complete ban will prove to be a disincentive for domestic and foreign investment in India.